Welcome back. We're kicking off the telecom section of the presentations here with BCE. Funny fact, I have to mention, the first Canadian transcontinental phone call made by Alexander Graham Bell from Montreal to Vancouver was made in this hotel in 1916.
Wow.
I thought it was an interesting fun fact. Let's cut to the chase now. We have John Watson, Group President of the Enterprise Business at Bell, and Curtis Millen, the CFO of Bell. Thanks for coming. We really appreciate that you saved the announcement yesterday for just before our conference. Appreciate that a lot. Had an important announcement yesterday with the Government of Saskatchewan, 300MW data center, for which you're building the infrastructure, not the chips. That, I think that was a big announcement. We had a report on it last night. What do you think is your competitive advantage that enables the 20% IRR that was communicated with the announcement yesterday?
Why, why you?
That's a key question. You know, when we looked at creating this business, we had guardrails in terms of financial flexibility. We looked at how we could create a strategy that would allow us to achieve that IRR. What would you have to craft? How would you create it? That's not an easy thing. In doing that, it set us up for really good success. When you've got that bar, everything else feeds into that model in terms of the decisions you make and what you create purposely. Infrastructure is a very good spot to play and sits well with the economic returns we can create. We looked at GPU, CSP ownership.
We realized that wouldn't allow us to get to where we needed to, so we figured out how to secure best-in-class partners.
Mm.
Manufacturers in the case of Cerebras and Groq previously.
Right.
The key thing when we teed that up is we said that we can't be me too. One of my comments yesterday on the call was that there's 100 companies that can go and build a data center, right? It's not that complicated, but the difference is in why Premier Moe selected to work with us was that we bring something much, much different. We've been spending three years crafting a much more complete sovereign AI solution that is very difficult to replicate because no one else has built something similarly. In doing that, we can actually bring those GPUs, those capabilities, and the sovereignty to life for Canadian companies and government, and that really strikes a chord with the partnership with Premier Moe. It makes a big difference in terms of the economics and scale.
When you think of the IRR 20%, that's based on the infrastructure, what we've teed up, customers up front, site power, permits up front before we announced.
Right
ready to go. Doing that, everything on top of that from a Bell Cyber, from a TechCo, and we can talk about a TechCo if you wish, that's all incremental that provides differentiation. Those are all new revenues, new capabilities, and you get this flywheel effect across the entire stack.
Great. I think the 20% IRR is really what stuck with the investors, at least from my conversations. That really begs the question of whether this model is going to be replicable for the rest of the power allocation that you have. I think you have north of 400 MW still that is not contracted yet. Do you think such economics can be replicated for the upcoming deals?
The economics are a little bit different depending on site size. We have a variety of sites, and some smaller in the seven, 25, 30, 32 range and larger ones. The bar for all of them, though, when we look at investing is getting to an IRR of 20. The inputs are different between a small site. Some are brownfield, meaning they're a retrofit. Some are greenfield. Some we're leasing properties. Some we acquire properties, so there's a different ingredient mixed to all of them. Our bar in terms of going ahead, call it our own investment-
Mm-hmm
Committee, I think he chairs it. He's looking for an IRR of 20%, and so is Mirko. That's the bar. We operate underneath that with different parameters depending upon the assortment that we secure in a given site. We're always looking for that kind of return. That return we believe will be solid as we roll through. The inputs and outputs of it getting there are going to be different based on the nature of each site and capability.
I'd just add on that, you know, and John's been talking for a year, and we've been having a conversation, like, access to power and securing power really is the first domino. Yes, we bring all these capabilities, and that's part of the reason why we've been able to secure power, and now we're monetizing that power. You know, in terms of are we able to replicate that IRR, that's kind of the critical point of it. We're turning down opportunities that don't meet that hurdle because we're not chasing any opportunity just to fill a data center. I mean, we have power.
Mm-hmm.
It's a finite asset. We need to monetize that asset that we've had and frankly what we've created. The 20% is pretty clear for me.
What are the next things that you're working on? Are you working to secure more power? Maybe we can think about seeing more end contracts with the end customer being the governments or what are the next thing that you're going to working on? We're a live broadcast. You can announce it here. I was going to say, it's all of the above, right? John doesn't sleep much these days.
Yes.
It's all of the above.
It's a fascinating mix of activity in the calendar every day, I can tell you. As Curtis said, the power is key, but then it's also the land, and then it's also the permitting, which is important.
Right.
Right? Then it's we're always customer first, meaning customer comes first before we invest the money. All of those parameters are working in partnership. The one thing too that we didn't mention yesterday was that we're also go-to-market for these customers that we bring in. In terms of Cerebras, we're a go-to-market partner. We've got the biggest B2B sales force in Canada.
Yeah.
We've got 36,000 customers. We're a great go-to-market partner with them. As part of the contract, there's an obligation for us to build and create that sales skill incrementally beyond today, which is a great flywheel. Their technology's amazing, if anyone hasn't used it. Point your model at their inference, and they are absolutely world-class. There's those dimensions that really come to fruition. You know, we're working on a number of files in the public sector. I can't share anything. Most would be protected regardless.
Right.
There's good things happening. We've got a really good prime minister, a really good senior staff, and an excellent Minister of AI and Innovation, Evan Solomon. There's a real bit of momentum happening in Ottawa that's going to be beneficial across the board.
Yeah
in terms of investment, in terms of AI. We're in a perfect spot. One of the things we probably haven't mentioned is clearly we've also built a Canadian alliance of technology companies. You've seen the announcements. You saw Coveo.
Yeah
Built here in Montreal, a unique partnership on go-to-market we've built there. We've also built one in infrastructure recently. We've obviously linked up with Cohere, the Canadian LLM.
Right.
Another important one for you beyond the Canadian alliance of organizations to bring tech to life in Canada and AI is SAP. SAP chose Bell for sovereign for Canada. Think of that, SAP, one of the world leaders in terms of understanding the importance of this based on their head office. They chose us to work together to go and build that, and I think you'll see a lot more of that. As you talk about sovereign, you need platforms as part of that sovereign capability to bring it to life for companies and the government. It's not a vacuum where you're going to go, "Oh, great, I got sovereign inference over here. Fantastic." No. It's you have to run your operations in a sovereign domain with SaaS layer, compute layer.
Yeah
A tech who can bring that to life and Bell Cyber for an implementation. That's where it gets really, really interesting. Those are the kind of things we're working on. Those will come to fruition.
Yeah, good validation point. The Europeans have had to deal with sovereign AI as much as we have and we will, so a good validation point. You know, we've talked about the return profile. The aspect we didn't talk about is the risk that is brought in that transaction. Obviously, the way you've structured the deal, you're able to mitigate a lot of those risks, but what do you see, what could go wrong with the major project that was announced yesterday?
I might for a second just clarify.
Go ahead.
What risk we're not taking, right? We're not taking the chipset risk.
Right
The kind of life cycle of chip risk. We're not taking end customer risk in that we already have contracts signed, right? The ultimate off-takers and kind of timing of ramp of AI use cases, we're not taking that risk. Sovereign AI is upside for us. It's. We didn't underwrite that in the base case. We're not actually taking timing of sovereign AI ramp-up. I mean, it's going to happen, but we're not taking the timing risk because, again, we've sold out the facility on day one. We've negotiated so that we have the right to actually displace and move in sovereign workloads, but we're getting paid for 100% of the facility on day one, so that's not a risk we're taking. It comes down to counterparty risk, which John can jump in on, and construction risk, timing and cost overrun.
Right.
The points that he mentioned, those would've been the things that I really worried about.
Yeah. Right
In locking those down.
Yeah
Getting to where we are today and having exceptional contracts with extraordinary companies. Yes, we always have to move ahead, and we have to build it. To give you some confidence, we've built two centers already.
Yeah.
The second one we haven't announced yet. We went from dirt to building complete in nine months in a difficult geographic area. What do I mean by difficult? The key thing when you're building is access to trades. Access to electricians is one of the key
Yeah
parameters, and we completed that building in nine months. That building is one half the size of one of the four data halls that we're constructing. Again, to bring confidence, it's not as if we haven't done this before. The key point I made yesterday was that we don't do the racks and wiring inside. We hand that off to CoreWeave and Cerebras. They want to do that work anyways, so it means that we're not getting into what is a heck of a lot of work.
It's a different expertise.
It's a tremendous amount of work to build those data halls. I think it's a really nice bookend of managing our risk. These are framed with similar structures and similar engineering so that they're repeatable. I think we also have a very good team leading that.
That space. That brings a lot of comfort there. In terms of the customers, I know this came up yesterday, and there's always a risk with customers. We think we have two extraordinary customers. The success Cerebras has had recently, you can read the press release and the comments around that, but they are really gaining momentum with very large customers. Their technology's fantastic. That's, you know, a testament to Andrew Feldman, exceptional technology and company pre-IPO that he's built. CoreWeave's outstanding. They're best in class generally in the space they play. You know, I'm not going to get into their financials and their leverage, but they're really good at what they do.
Yeah, early NVIDIA partner and.
You know, you can see the same press releases that.
Yeah
That I do. They have extraordinary customers with very big contracts. I think they're very, very good, and as Curtis mentioned, we're in the infrastructure side, with a building, with power teed up that, and long-term contracts. We have great optionality.
Right
because we're not sitting there with $10 billion in GPUs.
Yeah. Well, that's all good to hear, and I think the answer from the clients was very positive, at least from our conversations. I wanted to switch gears a bit and talk about the wireless. I don't want to necessarily talk about what we're seeing very near term because we're seeing, again, that there's some skirmishes in the industry on wireless competition. I want to talk about what are the ways that the industry can get out of that commoditization cycle. Are there ways you can maybe with network slicing or other ways that the industry can start selling its premium services at a premium price again?
Yes. Look, there will be skirmishes. I know you didn't want to talk a lot about it, but people I'm sure do-
Yeah
Wanna talk a little bit about it. If you rewind the clock a little bit, you know, it's a competitive industry. There are more competitive times of the year. Think back to school, think Black Friday, think Boxing Week. If you rewind the clock a little bit, pretty still competitive, but rational competition if you look at back to school, Black Friday, even Boxing Week, it was a little bit more competitive, but still MRCs were up year over year. Come January, it tends to be lower volume month anyway, but obviously the competition ramped up a little bit. Probably, you know, too much ultimately. But that's our industry. I mean, competition's going to spike and then it's going to hopefully drop, and you kind of manage long term. We're not.
I mean, we've said this before, we can always go out and buy more loads and customers.
Yeah
In the market, but we are trying to manage this business long term, not kind of what weekend sales were and what the week was. As you look over the long term, we would think there's continued growth in the industry. We do continue to expect ARPU to turn around start of 2027. Penetration will continue to increase. There is growth, and what we're looking at, right, is a continuation of the trends that we've seen and been able to execute. More of our loading on the Bell brand and away from kind of flanker brands. More of the bundled kind of customer base and household, which is why it's a long way to get to actually answering a question. I do think fiber for us, ironically, is how we differentiate on the wireless side, right?
There are households that just want kind of ease of single bill. They know everything's going to work, and fiber actually now brings a differentiation for your wireless.
Right.
Ultimately, my simple view is customers are a little indifferent as to what network they're on in terms of wireless, wireline, or Wi-Fi. They just want their stuff to work, and their stuff works better if they're actually wireless subscriber with us and a fiber subscriber. Because your Wi-Fi experience in the house is actually differentiated if you're on our fiber. I know it sounds.
Yeah
Kind of a left door into the question here, but fiber actually brings differentiation to the overall customer experience in terms of their access to network. I think that continues.
Mm-hmm.
Where we've seen great success in terms of kind of our endemic ability to reduce churn relative to others, and you've seen that the last three quarters, double-digit churn improvement, is just an improving overall customer experience. Again, it's not one facet of customer experience because if you're great on one, but you kind of drop the ball on the other, the customer doesn't remember, you know, the part you did great at. It's end-to-end customer experience and just making sure that it's smooth as you would say, from end to end. That's meet with them, interact how they actually want to interact. If they want to call, great, answer the phones. If you're offering a call back, make sure you call back, make it simple. They want to interact online digitally. We now have those capabilities. They're all relatively new.
I think the overall customer experience continues to improve, and I think that's a bit of a lagging indicator that we'll continue to see goodness generated over the next years to come.
Yeah, it takes time to.
Yeah
turn the perception around, and you've been working hard on this. Frankly, that's before we get into our, again, which is unique to us, our ability to actually bundle Crave and D2C. I mean, it's not coincidental that we're delivering much more content D2C. I mean, Crave obviously has its shows, but it has great third-party content also. You start bundling in mobility internet and Crave content. It is a differentiator for us.
That's before we get into, you know, FIFA World Cup. I mean, we just have
Right
content, whether it's Heated Rivals or Game of Thrones spinoffs.
You talked about fiber in your answer. That's actually a good segue to the wireline portion of your business. You've been building a lot of fiber over the last four or five years. You've accelerated on that, on that front. Where are we in the journey of making sure the network is well penetrated or has the market share we want to have? I know you started earlier in the Atlantic provinces. Maybe see if you can give some goalposts where you are in the Atlantic versus Ontario and Quebec maybe.
Yeah, it's funny. It's not a specific answer because the simple answer for me is fiber is better than cable.
Yeah.
The more fiber you have, the more you beat cable, the more subscribers you have. The faster you have fiber, the faster you have more customers and deliver kind of world-class technology. Is there a ceiling? I mean, look, we're north of 50% market share in the East, increasing share where we have fiber. You know, we get to 40% within five years where we've built out fiber. I don't actually see much of a reason over time where that share doesn't just continue to grow because fundamentally, it's just a superior product. As long as you manage the customer experience, you're providing the best technology. There's now wireless differentiation because of Wi-Fi in the home with fiber.
Continue to deliver the best technology and do a great job of meeting and exceeding customer expectations on the customer experience side. There's no reason that we don't continue to pick up more and more of the net adds and continue to do better on churn.
Right.
You know, maybe I'm pushing a little too hard internally, but I don't really put a ceiling on that over time. Now, in terms of pricing dynamics and market share dynamics, the rational tactics in market change over time, but fundamentally, it's a better product, and we should continue to drive share and drive our free cash flow on that basis.
With lower maintenance CapEx as well.
Mm-hmm.
I want to touch a bit on Ziply Fiber, was a big transaction closed last year. The main concern I hear from investors is that you kind of take all the plans from every fiber builder in the U.S., you add that up, and you get to a number of expected fiber penetration in 2031 or in 2030, that gets to approximately 85% penetration, give or take. This is a concern for some, as this seems like a high number for fiber to the home or fiber to the premise. How do you manage that risk that every one of the big builders are building at the same time, there's a land grab dynamic, and investors wan make sure you're not jeopardizing the ROI on that investment?
I'll answer the second part of that. We have very good options in terms of allocating capital. If it's not the best use of capital, we're not going to invest the capital, one. Two, yes, the U.S. has been behind Canada in terms of deploying fiber. The big folks, AT&T and Verizon, have got on board, frankly, that fiber is the future, and it's just a better product, so they are clearly ramping up their build. Honestly, we are kind of in their wake a little bit in terms of riding their wave of marketing that fiber is better and
Mm-hmm
Kind of converting folks in the U.S. to understand, like we do up here and basically every other jurisdiction, that fiber is just better than cable. That's actually a tailwind for us, that the message is getting out there. Three, importantly, look, if AT&T or Verizon build fiber in community A, that's great. We're going to go compete somewhere else. I mean, we're a first to fiber. Like, the importance here, and I'll repeat it, I mean, we're first to fiber. If there's no fiber in that market, we build fiber, take share from cable, drive great returns. If there's already a fiber player there, the return dynamic is very different, and that's whether it's AT&T or one of the smaller shops that have been operating.
I mean, smaller shops have popped up in the U.S., and they've been taking share from cable.
Right.
Even then, that makes the investment decision much different because much better economics going from 0%- 40% than having to compete against another fiber operator. Like, the return and ability to drive free cash flow is what drives our investment decisions. We're not looking to compete with other fiber operators because that just changes the dynamic. It changes your return profile.
Can I summarize by saying that your end objective of 8 million passings is a bit more flexible than your ROI objective?
Yeah. I would say the objective is to drive shareholder value and drive free cash flow. I mean, that CAD 8 million is a tactic, and I would take a half step back here and say, it's a good news story if the biggest concern is, can we actually grow fast enough as opposed to, is the opportunity a great one? I think it's established now fiber build in the U.S. is a great opportunity, a great returns opportunity, and we're just talking about how much of that opportunity is available over the next handful of years, which is a pretty good place to be in because we have all that option value.
Great. Then maybe last question. I want to tie it all back to the balance sheet and leverage. Yesterday, with the big Saskatchewan announcement, you didn't make any announcement that you wanted to bring a financial partner into that transaction. Presumably, you like the economics and you, your balance sheet can withstand the CAD 1.7 billion investment. Is that still the case if you don't expect to have a partner coming in for that deal? Or maybe next deal, do you think that could be an option?
Yeah. I think you have a few things. Sorry, I'll talk a little louder. Look, we are managing our balance sheet. It's important to us, right? We say it repeatedly, three and a half times by the end of 2027. This deal that we announced yesterday spins off a lot of free cash flow. It's credit positive, increases our growth profile, revenue, EBITDA, and free cash flow, so it'll help our leverage also over time. In terms of looking for a partner, we have to consider it if it drives more value for shareholders. If it lives within the parameters of our capital markets policy and it helps us accelerate growth and accelerate value capture for shareholders, then sure, we'll consider it. This transaction fit within our parameters anyway, and as you say, I do like the returns.
Moody's even called it credit positive, so.
It's just a fact.
All right.
Yeah.
That's all the time we had. Gents, thanks a lot for your time.
Thanks very much.
We have Exchange Income following.